And so another week is behind us - and another month...and quarter! Thanks again for joining us for another edition of your favourite Weekly Rand Review!

As concerns over the possibility of a banking system meltdown slowly recede (until the next shock?), emerging markets have begun to stabilize and slowly recover the ground lost over the last few weeks.

In a light week of economic data releases, local unit investors were focused on the central bank's interest rate decision on Thursday which would likely dictate the direction of the Rand.
Weighing heavily on the decision for the SARB was the previous week's unexpected inflation results, which showed an about-turn in February, notching back up to 7.0% from 6.9% a month earlier…

…and still well above the bank's target range of 3% to 6%.
A week of mixed emotions, and a great one for the local unit….

...but not so much for consumers, though.

Here’s the full story.

Key Moments (27-31 Mar 2023)

These were the top headlines over the past five days:

• SARBs Shock Decision - The South African Reserve Bank smashed expectations on Thursday by announcing an unexpected interest rate hike that fueled the Rand, but left Saffers disappointed.
• Eurozone Inflation Drops - Headline inflation in the Eurozone fell sharply in March to 6.9% from 8.5% in February off the back of improved energy costs, but core inflation remained sticky.
• UK Economy Resilience - Despite being expected to fall into recession this year, Britain’s economy showed its resilience once again, growing by 0.1% in Q4 of 2022, marginally beating expectations of zero growth.

It was a quiet start to the week, with no major local economic data expected until Thursday, when investors would be turning their attention to the central bank's interest rate decision.
But if you were privy to our forecasts from the previous week, you would have been ready for some fireworks, because this is what our forecasting system was showing us for the next few days...

...a significant gain for the Rand and a push below R18/$!

Following a week of minor gains last time around, the Rand got going on Monday at R18.19/$ but was quickly on the back foot and rose to the mid-R18.30s as investors held off placing big bets on the local unit until later in the week.

As we all know, the local economy has been hit with a barrage of negativity in recent times, the most recent of which was the inflation results from the previous week.

Inflation in South Africa edged back up to 7.0% in February from 6.9% a month earlier, ending a three-month rally and strongly indicating that economic and financial conditions are all but certain to remain volatile for the foreseeable future.

The local unit traded sideways for the rest of Monday and Tuesday but did start to make inroads as we headed closer to the MPC decision on Thursday. South Africa’s economy is expected to grow by a meager 0.2% in 2023, 1% in 2024, and 1.1 % in 2025, which leaves the country extremely sensitive to any unexpected shocks…

…while loadshedding continues to cast a shadow of doubt over the sustained growth prospects for businesses and the economy as a whole, as reports in the week underlined.

New data released by Stats SA last week showed that a whopping 243 businesses were liquidated in South Africa from the 1st of January to the end of February, owing in large to skyrocketing operational expenses, with companies having to fork out millions of Rands on hefty diesel bills to run generators.

The insurance, financing, real estate, and business service industries were the hardest hit, with 68 liquidations recorded, while the trade, catering, and accommodation industry saw over 25 businesses close their doors.

With no indication of loadshedding abating anytime soon, and an electricity rate hike incoming, businesses (critical to a healthy economy) are likely to remain under pressure for the foreseeable future.

Meanwhile, the drama surrounding Eskom and former CEO Andre De Ruyter took another plot twist last week, as reports emerged that De Ruyter has agreed to answer Parliament’s questions regarding the corruption allegations he aired last month in his interview with the eNCA. De Ruyter, whose location is still unknown, agreed, through his lawyer, to provide a written submission of the information required…

…and also confirmed that he would appear in person when a date and time for the meeting with Scopa is confirmed.

The sooner, the better, we reckon!

By Wednesday, emerging markets were making a comeback as the banking contagion fears that dominated headlines and dictated market movement over the last few weeks eased to a simmer. The local unit also received some support, dropping to R18.11/$ before the day’s end and continued strengthening into Thursday morning on expectations of a 25 basis point hike to be announced later in the day.

But we were in for a shock!

Instead, the Reserve Bank decided to raise its main lending rate by an unexpected 50 basis points, taking the repurchase rate to 7.75% and pushing prime lending rates to 11.25%!

The five-member MPC decision was split 3-2, with the former preferring the 50 basis point hike. SARB has now raised interest rates for the ninth time in a row, piling on a total of 425 basis points to the repo rate since it began tightening its policy over a year ago.

Central Bank Governor Lesetja Kganyago explained that the risks to the inflation outlook are assessed to the upside and elaborated that despite some easing in producer prices and food inflation, global price levels still remain elevated. Aside from local inflation, another factor that SARB need to balance is keeping track of interest rates, especially in the US.

The fact is that the gap between SA and US interest rates cannot be allowed to widen too much, or else foreign investors - who are always hunting for good interest rates - are more likely to shun rand-bassed assets…

…and as long as the US continues to hike its rates, it will put even more pressure on the local unit, which is already one of the worst-performing currencies this year.

Following the rate announcement and with the higher interest rates looking attractive to investors in search of good yields, it was just the trigger needed for the Rand to burst below R18/$ and gain as much as 2% on the greenback, reaching the mid-R17.70s for the first time since early February…

...just as our Elliott-wave & cycle-based forecasting model had predicted!

Right on the money! Who could have guessed.

However, in this instance, good news for investors means bad news for consumers. With savings already drying up at pace and reliance on credit continuing to grow, the latest rate hike rounds out a triple whammy on Saffers’ pockets from next month. From April, the new rate hikes will hit car and bond repayments hard, with payments on a bond of R1 million expected to increase by as much as R341 per month.

On top of that, standard electricity customers will have to prepare for the implementation of an 18.65% increase on their electricity tariff from the 1st of April…

…while medical aid costs are also expected to increase by 6.0% - 8.0%, depending on the provider.

Cash-strapped consumers are looking ever more likely to depend even further on credit to survive as the onslaught of elevated costs associated with maintaining a basic standard of living shows no signs of slowing down. The Rand, however, basked in the sunshine after investors emerged from weeks of hibernation and eventually settled in the low R17.80/$ region as an eventful Thursday drew to a close.

Before we wrap up the week’s events, here’s a quick look at some other news from around the financial world:

• The UK continued to show signs of avoiding a recession for the time being as its economy grew unexpectedly by 0.1% in Q4 of last year, reversing the 0.1% contraction from the previous three months. The major contributor to the increase was the travel sector, which jumped by 11%, while manufacturing edged up by half a percent. Household savings also received a much-needed boost, increasing by 1.3% after four months of negative growth, thanks in large to the government's energy bill support scheme.
• The Eurozone also had reason to cheer in the week as inflation across the 20-member bloc dropped significantly in March to 6.9% from 8.5% just a month earlier, with the bulk of the improvement being attributed to a drop in energy costs. However, while the headline inflation figures made for positive reading for the Eurozone, core inflation headed in the opposite direction, reaching an all-time record of 5.7% in March, up from 5.6% in February.

By Friday, the Rand found steady ground around R17.80/$, though investors remain nervous over the future prospects for the local unit.

With the SARB seeming more hawkish in its approach to curb inflation, it may help the local unit continue to unwind more of its undervaluation, but that brings with it more pain for consumers, businesses - and banks!

Ultimately, the Reserve Bank is simply doing what it feels it has to in order to cub inflation...

…and reading into that fact, there is every possibility of one (or more) interest rate hikes left in this cycle. Volatility in the Rand remains the order of the day, but the local unit closed a second consecutive week in the green.

Just as our forecast modelling had predicted (trust you weren't caught by surprise)!

The Week Ahead (3-7 Apr 2023)

Another relatively thin week of major economic data results is expected, but here’s what we will be keeping an eye on over the next five days:

• SA: S&P Global PMI (MAR), ABSA Manufacturing PMI (MAR)
• EU/UK: EU S&P Global Composite PMI Final (MAR), UK BoE Financial Policy Summary and Record
• US: ISM Manufacturing PMI (MAR), Balance of Trade (FEB), ISM Non-Manufacturing PMI (MAR), Non-Farm Payrolls (MAR)

Next week is going to be critical for the local unit and will likely provide some triggers for the underlying sentiment cycles driving the Rand over the short term and medium term.
Our forecasting models is starting to show a few interesting twists on the horizon, so be sure to check them out to help you in managing your exposures.

Stay safe. See you next week!

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To your success~

James Paynter